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Para 9.7.6 - Contract Closure | KartavyaDesk

Goods Manual

Original Rule Text

9.7.6 Closure of Contract 1. While making the final payment to the contractor and before releasing the PBG, it should be ensured that nothing is outstanding from the contractor because it would be difficult to retrieve such amounts after releasing the bank guarantee/final payment. Before the bank guarantee is released, a “no claim certificate” may be obtained from the contractor as per the format given in Annexure 24. 2. The contract shall stand closed upon a) Successfully perform all obligations by both parties, including completion of warrantee obligations and final payment. b) Termination and settlements after that, if any. 3. At least in large contracts [above Rs. 50 (Rupees Fifty) lakhs], it should be ensured that before the release of the bank guarantee (final payment, if there is no bank guarantee), the following reconciliations should be done across Departments involved in the execution of the contract: 4. Materials Reconciliation: The stores and/or the indentor should confirm that all materials ordered in the contract and paid for have been received in good condition and that there is no shortfall. A full reconciliation of all raw materials, parts, and assembly provided to the contractor should be done, including wastages and scrap/off-cuts returned. 5. Reconciliation with the User Department: Besides material reconciliation, the User Department should certify in writing that the following activities (wherever applicable) have been completed by the contractor, to the Department’s satisfaction, as per the contract: a) Achievement of performance standards of material/equipment supplied; b) Installation and commissioning;

What This Means

Para 9.7.6 of the Manual for Procurement of Goods, 2017, outlines the procedures for formally closing a contract after all obligations are met. Think of it as the 'final check' before everyone moves on. It's all about ensuring that the government gets what it paid for and that the contractor doesn't owe anything before the final payment is made and any performance bank guarantees (PBGs) are released. This rule applies to all government departments and agencies involved in procuring goods, and it directly affects both the government employees managing the contract and the contractors providing the goods or services.

Essentially, before closing a contract, the department must verify that the contractor has fulfilled all their responsibilities, including warranty obligations. For larger contracts (above Rs. 50 lakhs), a thorough reconciliation process is required. This reconciliation involves confirming that all materials ordered were received in good condition, and that the user department is satisfied with the performance, installation, and commissioning of the delivered goods or services. A 'no claim certificate' from the contractor is also required before the PBG is released, ensuring they won't come back later with additional claims.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Ensures all contractual obligations are met by both parties before closure.
  • •Requires a 'no claim certificate' from the contractor before releasing the PBG.
  • •Mandates materials reconciliation to confirm receipt of all ordered goods in good condition.
  • •User department must certify satisfactory completion of performance standards, installation, and commissioning (where applicable).
  • •Specific reconciliation procedures are required for contracts above Rs. 50 lakhs.

Practical Example

The Ministry of Electronics and Information Technology (MeitY) contracted 'Tech Solutions Pvt. Ltd.' for Rs. 75 lakhs to supply and install a new server infrastructure. Before releasing Tech Solutions' PBG and making the final payment, the IT department at MeitY meticulously reconciled all delivered server components, ensuring they matched the order specifications and were in perfect working order. The user department then provided a written certification confirming that the installed servers met the required performance standards and were successfully commissioned.

Furthermore, MeitY obtained a 'no claim certificate' from Tech Solutions. Only after these steps were completed and all discrepancies resolved, MeitY released the PBG and made the final payment, officially closing the contract. This ensured that MeitY received the full value of the contract and that Tech Solutions had no further claims against the ministry.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What is a 'no claim certificate' and why is it important?▼
A 'no claim certificate' is a document provided by the contractor stating that they have no further claims against the government regarding the contract. It's important because it protects the government from future financial demands after the final payment and release of the PBG.
What happens if materials are found to be missing or damaged during reconciliation?▼
If materials are found to be missing or damaged, the department must address the issue with the contractor before closing the contract. This may involve demanding replacement of the missing or damaged goods, adjusting the final payment, or taking other appropriate actions as per the contract terms.
Does this rule apply to all types of procurement contracts?▼
This rule applies to contracts for the procurement of goods. Specific rules may vary for other types of contracts, such as works contracts or service contracts, as outlined in other relevant manuals and guidelines.
What is the purpose of the Performance Bank Guarantee (PBG)?▼
The Performance Bank Guarantee (PBG) is a security deposit provided by the contractor to ensure they fulfill their contractual obligations. It protects the government in case the contractor fails to perform as agreed.
Who is responsible for ensuring compliance with Para 9.7.6?▼
The primary responsibility for ensuring compliance with Para 9.7.6 rests with the government officials managing the procurement contract, including the procuring entity, the stores department, and the user department.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Para 9.7.6 of the Manual for Procurement of Goods, 2017, what document should be obtained from the contractor before releasing the Performance Bank Guarantee (PBG)?

Related Rules

Para 9.4Manual for Procurement of Goods, 2024 - Para 9.4 - Chapter 9Para 9.5.5Manual for Procurement of Goods, 2024 - Para 9.5.5 - Chapter 9Para 1.8.2Manual for Procurement of Goods, 2024 - Para 1.8.2 - Chapter 1Para 2.2.2Manual for Procurement of Goods, 2024 - Para 2.2.2 - Chapter 2Para 2.2Manual for Procurement of Goods, 2024 - Para 2.2 - Chapter 2

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